Currency Anarchy: Toshiba Prepares for ¥70 per $

Oh the humanity. An apparently ineffectual G-20 has not stemmed further gains in the Japanese yen as the US seems to have gotten its way by escaping censure over its intentions to helicopter drop dollars en masse over the coming weeks. Hence, the yen is ominously poised to breach the 80 yen to 1 US dollar handle and break the postwar mark of 79,75. As someone said before, it's nothing less than a call to arms.

Now, I don't believe the Japanese consumer electronics firm Toshiba needs any introduction to IPE Zone readers as its laptops and personal computing peripherals are well-known the world over. Having shifted a lot of manufacturing and assembly to other parts of Asia for cost reasons, it is now contemplating what would be tantamount to the United States launching an ICBM full of greenbacks in this international currency war aimed at the heart of the Land of the Rising Sun. While Toyota is resigned to the idea of preparing its next financial report at 80 yen to the dollar, Toshiba is getting ready for the yen strengthening to 70 to the dollar. My oh my, if "Project 70" isn't currency anarchy in motion I don't know what is:

Japanese electronics conglomerate Toshiba Corp is stepping up its expansion of overseas production and procurement to withstand a further rise in the yen as far as 70 to the dollar, its chief executive said on Monday. Toshiba conducted a stress test last October, dubbed "Project 70", that assumed an exchange rate of 70 yen to the dollar and became the basis for expanded efforts to counter the effects of the rising yen.

"People said the yen would never go to that level when we came up with this plan last October, but looking at the weakness of the dollar and the strength of the yen now, that may not be too far from reality," Toshiba CEO Norio Sasaki said at the Nikkei Global Management Forum in Tokyo. The dollar fell to a 15-year low against the yen on Monday, drawing closer to its postwar record low of 79.75 yen set in 1995 as traders took a weekend G20 statement as a green light for continued dollar weakness.

Yen strength has taken its toll on Japan's export-fuelled economy, with data on Monday showing export growth slowed for a seventh consecutive month while policymakers struggle to keep the fragile economic recovery intact. Sasaki said Toshiba's measures, which also include expanding strong businesses and shrinking money-losing operations, have been paying off and now the company's operating profit actually rises by 700 million yen ($8.6 million) for each 1 yen gain in the Japanese currency's value against the dollar.

Like for most Japanese exporters, the strong yen has eaten into profits reported after conversion since the multiplier value keeps going down:

Yen strength against the dollar used to cut into Toshiba's profit. He added, however, that the euro was a "different story". Strength in the yen generally hurts the competitiveness of Toshiba, the world's No. 2 maker of NAND-type memory chips used widely in cellphones and consumer electronics, as its rival Samsung Electronics Co enjoys the benefits of a relatively weak won. "We have the currency issues and other disadvantages including a high corporate tax," Sasaki said. "What we can try to do is to stay ahead with advanced technology while lessening the impacts (of these disadvantages)."

The dollar has fallen steadily across the board, including against the yen where the threat of intervention by Japanese authorities has slowed but not halted the slide, as the market anticipates a second round of quantitative easing from the Federal Reserve.

At the rate those Yanks will be dropping greenbacks, dare we say "Project 60" is on the cards? OTOH, you can argue that those of us in surrounding Asian countries are indirect beneficiaries as we become more enmeshed in "Factory Asia" when firms like Toshiba relocate activities abroad to cope with the mighty yen. Then again neither are we immune to a dropping US dollar...